A group of Wisconsin distributors says FERC should order amandatory auction of short-term capacity only as a last resort -after other proposed initiatives, such as increased pipelinereporting requirements failed to achieve a competitive end.

“…[B]efore imposing any auction requirement, the Commission[first] should try to meet its competitive objectives through itsproposals for mandatory disclosure of capacity andtransaction-related information. Full information disclosure willhelp create the transparency required for the market to work moreefficiently without mandating the manner in which capacity issold,” the Wisconsin Distributor Group (WDG) said earlier this weekin its initial comments on the mega-notice of proposed rulemaking(NOPR) and notice of inquiry [RM98-12, RM98-10].

Like most gas distributors, the Wisconsin group believes FERC’sproposal to increase pipeline reporting and posting requirementsfor sales of short-term capacity would be the best defense againstpipeline market power, and in the process would cancel out the needfor the controversial auction.

WDG and other LDCs are big fans of the NOPR initiative requiringpipelines to report a wider range of information on availablecapacity, including total design capacity of each point or segment;the amount scheduled at each point on each segment on a dailybasis; and planned and actual maintenance or system outages thatwould reduce the amount of capacity available. Also, pipes wouldhave to include in their Index of Customers the receipt anddelivery points held under contracts, the zones or segments inwhich capacity is held; a shipper’s contract number, the affiliaterelationship between pipeline and shipper/shippers, and the assetholders that control 20% or more of capacity in a rate zone.Additionally, pipelines would be required to report morecontract-related information. Distributors believe the availabilityof this type of information would go a long way towards increasingthe transparency of the gas market, and in turn would minimize theneed for a mandatory auction.

The auction, as spelled out by FERC, has too many “practicalobstacles,” the Wisconsin LDCs said. For one, the Commission hasyet to address how bids and capacity awards would be coordinated insituations involving multi-pipeline transactions, they noted. Also,they questioned whether an auction could be designed to act quicklyenough for shippers to acquire capacity to match their supply.”Having to wait until a synchronized auction period – whether thenext business day or several hours later on the same day – couldfrustrate the transaction.” These problems further solidify thecase for taking a wait-and-see approach to the auction, the LDCssaid.

On a related proposal, the Wisconsin distributors recommendedthat the Commission remove the price cap on all short-term capacityat some “predetermined date certain” after the market has had timeto “become accustomed to the newly available information and otherchanges.” It proposed that FERC remove the price cap on an”experimental one-year basis,” with a review of its policy at somelater point.

With respect to negotiated terms and conditions, the Wisconsindistributors proposed conditioning a pipeline’s authority tonegotiate rates and services on it agreeing not to blockcompetitors from entering its markets.

Moreover, the distributor group agreed the tying of negotiatedtransportation services to “unwanted” sales services or otherservices shouldn’t be permitted by pipelines or their affiliates.And it concurred that negotiated transactions should be fullydisclosed in order to “detect and deter the exercise of marketpower, undue discrimination and preference.”

Additionally, the Wisconsin LDCs said they supported FERC’sproposal to make certain terms non-negotiable. For instance, apipeline shouldn’t be permitted to negotiate scheduling,curtailment priority, or capacity release and flexible receipt anddelivery point rights.

To eliminate the bias against long-term contracts, thedistributors proposed term-differentiated rate options for recoursecustomers.

Surprisingly, the distributors asked FERC to postpone anindustry-wide review of the straight-fixed variable (SFV) ratedesign until other long-term ratemaking issues are resolved. Untilthen, a possible “interim solution” would be for the Commission toeliminate its current mandate for SFV, allowing pipelines, shippersand the market the flexibility to tailor the rate design tospecific situations, they said. Separately, the LDCs urged FERC todo away with the discount adjustment on the grounds that it causesunfair cost shifting to captive shippers.

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